Independence Contract Drilling, Inc. Reports Financial Results for the Third Quarter Ended September 30, 2023

HOUSTON, Nov. 1, 2023 /PRNewswire/ -- Independence Contract Drilling, Inc. (the "Company" or "ICD") (NYSE: ICD) today reported financial results for the three months ended September 30, 2023.

Third quarter 2023 Highlights

• Net loss, as defined below, of $7.6 million, or $0.54 per share
• Adjusted net loss, as defined below, of $5.2 million, or $0.37 per share
• Adjusted EBITDA, as defined below, of $12.9 million
• Adjusted net debt, as defined below, of $183.2 million
• 13.4 average rigs working during the quarter
• Fully burdened margin per day of $14,005

In the third quarter of 2023, the Company reported revenues of $44.2 million, net loss of $7.6 million, or $0.54 per share, adjusted net loss (defined below) of $5.2 million, or $0.37 per share, and adjusted EBITDA (defined below) of $12.9 million.  These results compare to revenues of $49.1 million, a net loss of $7.2 million, or $0.53 per share, adjusted net loss of $4.8 million, or $0.35 per share, and adjusted EBITDA of $12.5 million in the third quarter of 2022, and revenues of $56.4 million, net loss of $4.2 million, or $0.30 per share, adjusted net loss of $1.0 million, or $0.07 per share, and adjusted EBITDA of $18.7 million in the second quarter of 2023.

Chief Executive Officer Anthony Gallegos commented, "The third quarter of 2023 represented an inflection point for ICD.  First and most important, the third quarter represents the low point for ICD operating utilization driven by the most recent commodity downturn.  The quarter also represented the end of the transition of rigs from our Haynesville to our Permian market and the elevated rig churn associated with repositioning our fleet with customers with longer term drilling programs.  While these items weighed on our second and third quarter financial results, we believe the transition of rigs between basins and customers has positioned ICD well for the remainder of 2023 and fiscal 2024.

During the third quarter, we saw increased opportunities for incremental rig reactivations beginning in the fourth quarter of 2023.  From these opportunities we have secured contract awards for two incremental rigs commencing mid-fourth quarter, and we are pursuing additional reactivation opportunities for late fourth quarter and early 2024 start.  While we are experiencing increased competition and associated dayrate pressure on these early-cycle reactivations, ICD's success so far is being driven by increased demand for rigs with our 300 series specifications.  In this regard, we completed two additional 200-to-300 series conversions during the third quarter, have already completed a third conversion in the fourth quarter, and are working on additional contract opportunities that would justify additional conversions over the next three to six months.

I am also pleased that we continued making progress toward our debt reduction goals during the third quarter, repaying an additional $5.0 million of principal on our convertible notes at quarter end, and reducing overall adjusted net debt by $8.0 million."

Quarterly Operational Results

In the third quarter of 2023, operating days decreased sequentially by 10% compared to the second quarter of 2023.  The Company's marketed fleet operated at 51% utilization and recorded 1,229 revenue days, compared to 1,601 revenue days in the third quarter of 2022, and 1,369 revenue days in the second quarter of 2023. During the third and second quarter of 2023, the Company also recognized early termination revenue of approximately $0.7 million and $5.1 million, respectively.

Operating revenues in the third quarter of 2023 totaled $44.2 million, compared to $49.1 million in the third quarter of 2022 and $56.4 million in the second quarter of 2023.  Revenue per day in the third quarter of 2023 was $32,925, compared to $28,646 in the third quarter of 2022 and $34,467 in the second quarter of 2023.  Revenue per day statistics exclude early termination revenue recognized during the quarter.

Operating costs in the third quarter of 2023 totaled $27.5 million, compared to $31.4 million in the third quarter of 2022 and $33.8 million in the second quarter of 2023.  Fully burdened operating costs were $18,920 per day in the third quarter of 2023, compared to $17,305 in the third quarter of 2022 and $19,005 in the second quarter of 2023.  Reported cost per day excludes Haynesville-to-Permian rig transition costs of approximately $0.8 million and $2.8 million in the third and second quarter of 2023, respectively.

Fully burdened rig operating margins in the third quarter of 2023 were $14,005 per day, compared to $11,341 per day in the third quarter of 2022 and $15,462 per day in the second quarter of 2023.  The Company currently expects per day operating margins in the fourth quarter of 2023 to fall approximately 14% sequentially driven primarily by lower average dayrates as rigs recontract in the current market environment and higher costs associated with reactivation expenses.

Selling, general and administrative expenses in the third quarter of 2023 were $6.9 million (including $2.0 million of non-cash compensation), compared to $7.0 million (including $1.7 million of non-cash compensation) in the third quarter of 2022 and $5.2 million (including $1.3 million of non-cash compensation) in the second quarter of 2023.  Cash selling, general and administrative expenses increased sequentially due to a $1.1 million charge associated with modification and extension of an existing drilling contract with a customer, which has been excluded in the Company's calculation of adjusted net loss per share and adjusted EBITDA.

During the third quarter of 2023, the Company recorded interest expense of $9.2 million, including $2.4 million relating to non-cash amortization of Convertible Note debt discount and debt issuance costs.  The Company has excluded this non-cash amortization when presenting adjusted net loss.  During the third quarter of 2023, the Company redeemed $5.0 million of Convertible Notes at par plus accrued interest.

Drilling Operations Update

The Company currently expects to operate approximately 14.5 average rigs during the fourth quarter of 2023 and exit 2023 with 17 to 18 rigs under contract.  The Company's backlog of drilling contracts with original terms of six months or longer is $46.8 million.  This backlog excludes rigs operating on short-term pad-to-pad drilling contracts with original terms of less than six months. 

Capital Expenditures and Liquidity Update

Cash outlays for capital expenditures in the third quarter of 2023, net of asset sales and recoveries, were $3.9 million. 

As of September 30, 2023, the Company had cash on hand of $6.0 million and a revolving line of credit with availability of $15.7 million, and net working capital of $5.8 million. The Company reported adjusted net debt as of September 30, 2023 of $183.2 million, consisting of the full amount of the outstanding Convertible Notes and outstanding borrowings under the Company's revolving line of credit.

Conference Call Details

A conference call for investors will be held today, November 1, 2023, at 11:00 a.m. Central Time (12:00 p.m. Eastern Time) to discuss the Company's third quarter 2023 results.

The call can be accessed live over the telephone by dialing (855) 239-3115 or for international callers, (412) 542-4125.  A replay will be available shortly after the call and can be accessed by dialing (877) 344-7529 or for international callers, (412) 317-0088.  The passcode for the replay is 5494884.  The replay will be available until November 8, 2023.

Interested parties may also listen to a simultaneous webcast of the conference call by logging onto the Company's website at www.icdrilling.com in the Investor Relations section.  A replay of the webcast will also be available for approximately 30 days following the call.

About Independence Contract Drilling, Inc.

Independence Contract Drilling provides land-based contract drilling services for oil and natural gas producers in the United States. The Company constructs, owns and operates a fleet of pad-optimal ShaleDriller rigs that are specifically engineered and designed to accelerate its clients' production profiles and cash flows from their most technically demanding and economically impactful oil and gas properties. For more information, visit www.icdrilling.com.

Forward-Looking Statements

This news release contains certain forward-looking statements within the meaning of the federal securities laws. Words such as "anticipated," "estimated," "expected," "planned," "scheduled," "targeted," "believes," "intends," "objectives," "projects," "strategies" and similar expressions are used to identify such forward-looking statements. However, the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements relating to Independence Contract Drilling's operations are based on a number of expectations or assumptions which have been used to develop such information and statements but which may prove to be incorrect. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict, and there can be no assurance that actual outcomes and results will not differ materially from those expected by management of Independence Contract Drilling. For more information concerning factors that could cause actual results to differ materially from those conveyed in the forward-looking statements, please refer to the "Risk Factors" section of the Company's Annual Report on Form 10-K, filed with the SEC and the information included in subsequent amendments and other filings. These forward-looking statements are based on and include the Company's expectations as of the date hereof. Independence Contract Drilling does not undertake any obligation to update or revise such forward-looking statements to reflect events or circumstances that occur, or which Independence Contract Drilling becomes aware of, after the date hereof.

The following table provides various financial and operational data for the Company's operations for the three months ended September 30, 2023 and 2022 and June 30, 2023 and the nine months ended September 30, 2023 and 2022.  This information contains non-GAAP financial measures of the Company's operating performance.  The Company believes this non-GAAP information is useful because it provides a means to evaluate the operating performance of the Company on an ongoing basis using criteria that are used by the Company's management.  Additionally, it highlights operating trends and aids analytical comparisons.  However, this information has limitations and should not be used as an alternative to operating income (loss) or cash flow performance measures determined in accordance with GAAP, as this information excludes certain costs that may affect the Company's operating performance in future periods.

Non-GAAP Financial Measures

Adjusted net debt, adjusted net (loss) income, EBITDA and adjusted EBITDA are supplemental non-GAAP financial measures that are used by management and external users of the Company's financial statements, such as industry analysts, investors, lenders and rating agencies.  In addition, adjusted EBITDA is consistent with how EBITDA is calculated under the Company's credit facility for purposes of determining the Company's compliance with various financial covenants.  The Company defines "adjusted net debt" as long-term notes (excluding long-term capital leases) less cash.  The Company defines "adjusted net (loss) income" as net (loss) income before: asset impairment, net; gain or loss on disposition of assets, net; amortization of debt discount; amortization of issuance costs; gain or loss on extinguishment of debt; change in fair value of embedded derivative liability, gain on extinguishment of derivative and other adjustments.  The Company defines "EBITDA" as earnings (or loss) before interest, taxes, depreciation and amortization, and asset impairment, net and the Company defines "adjusted EBITDA" as EBITDA before stock-based compensation, gain or loss on disposition of assets, gain or loss on extinguishment of debt, gain on extinguishment of derivative and other non-recurring items added back to, or subtracted from, net income for purposes of calculating EBITDA under the Company's credit facilities.  Neither adjusted net (loss) income, EBITDA or adjusted EBITDA is a measure of net (loss) income as determined by U.S. generally accepted accounting principles ("GAAP").

Management believes adjusted net debt, adjusted net (loss) income, EBITDA and adjusted EBITDA are useful because they allow the Company's stockholders to more effectively evaluate the Company's operating performance and compliance with various financial covenants under the Company's credit facility and compare the results of the Company's operations from period to period and against the Company's peers without regard to the Company's financing methods or capital structure or non-recurring, non-cash transactions. The Company excludes the items listed above from net income (loss) in calculating adjusted net (loss) income, EBITDA and adjusted EBITDA because these amounts can vary substantially from company to company within the Company's industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. None of adjusted net (loss) income, EBITDA or adjusted EBITDA should be considered an alternative to, or more meaningful than, net income (loss), the most closely comparable financial measure calculated in accordance with GAAP, or as an indicator of the Company's operating performance or liquidity. Certain items excluded from adjusted net (loss) income, EBITDA and adjusted EBITDA are significant components in understanding and assessing a company's financial performance, such as a company's return on assets, cost of capital and tax structure. The Company's presentation of adjusted net debt, adjusted net (loss) income, EBITDA and adjusted EBITDA should not be construed as an inference that the Company's results will be unaffected by unusual or non-recurring items.  The Company's computations of adjusted net debt, adjusted net (loss) income, EBITDA and adjusted EBITDA may not be comparable to other similarly titled measures of other companies.

INVESTOR CONTACTS:

Independence Contract Drilling, Inc.
E-mail inquiries to: [email protected]
Phone inquiries: (281) 598-1211

SOURCE Independence Contract Drilling, Inc.

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